Économie et Statistique n° 429-430 - Low wages and labour market

Economie et Statistique
Paru le : 26/08/2010

Effects of Social-Contribution Relief on Jobs and Wages: an Assessment of the 2003 Reform

Matthieu Bunel, Fabrice Gilles et Yannick L’Horty

The French reform of 17 January 2003 unified the procedures for exemption from social contributions between firms applying 35-hour work weeks and 39-hour work weeks. At the same time, over a three-year period from 2003 to 2005, it achieved convergence between the hourly minimum wage (SMIC) and the various monthly wage guarantees that existed hitherto side by side. We assess the effects of the reform on jobs and wages by matching data extracted from the files of the national agency in charge of collecting social-insurance contributions (URSSAF). These data make it possible, for the first time, to determine employers’ perceptions of social-contribution relief. The assessment takes two factors into account: first, the endogeneity of the reduction in the cost of labour brought about by the reform (the cost of labour decreases more sharply in firms that have increased their share of low-wage jobs after the reform); second, the differences between firms that were initially on a 35-hour or 39-hour work week when the reform was introduced. The key variable is the variation in the cost of labour directly due to the changes in social-contribution scales and the rise in minimum-wage levels, irrespective of post-2002 adjustments by the firm itself. We compute the variation for each firm on the basis of wages paid in 2002. We then use parametric and non-parametric methods to estimate the variation’s effects on jobs and wages. The results indicate that the 2003 reform generated a mild increase in jobs in firms that stayed on a 39-hour work week, but had the opposite effect on firms that moved to a 35-hour work week. The reform’s net effect on total employment is ambiguous, whether measured by the number of jobs or in full-time-equivalent terms. It has, however, contributed to wage increases in both categories of firms.

Economie et Statistique
No 429-430
Paru le : 20/08/2010